Payments advisors warn of future dominated by card schemes

By Emma Olsson | 23 January 2020

Card schemes will control all payments in the next 10 to 15 years, according to a panel of payments advisors at the Westminster Business Forum’s Payments policy and regulation conference today in London. The panel, which also included spokespeople from Visa, UK Finance, and Lloyd’s Banking Group, discussed the transition of the UK’s payments infrastructure as cash usage declines.

“I think Mastercard and Visa will control everything. Every payment journey will pass a Mastercard or Visa station multiple times along its route,” said Bob Lyddon, chair of the Association of UK Payment Institutions.

“And I think we’re blundering into that from a competition perspective.”

Mark Falcon, director of economic advisory firm Zephyre, agreed.

“The world’s going to be dominated by the card schemes and you look at their share prices: that’s entirely what it’s priced on. It’s continuing growth, which is taking volume away from cash and interbank payments, and increasing their margins” said Falcon.

The UK Supreme Court is currently hearing appeals on Visa and Mastercard’s exemption from competition law. UK retailers have pushed back against the card schemes, arguing that Visa and Mastercard’s interchange fees should not be exempt. Meanwhile in Europe, the European Commission has investigated the card schemes on antitrust claims since 2013, closing the investigation in April of 2019 after the schemes agreed to cut fees on payments made by tourists using cards issued outside the EU.

Falcon mentioned similar issues being explored in the US.

“Now one of the accusations against Visa and Mastercard recently in the US is [they] themselves operate as a cartel through EMVCo, to set technology standards intentionally designed to protect the interests of card schemes and to prevent the development of non-card based payments.

“That’s also one of the things the EU’s looking into [with] an investigation into Apple Pay, that Apple Pay is effectively an exclusivity agreement between Apple and the card schemes to block non-card based payments.”

Falcon mentioned that China had banned Visa and Mastercard from operating within its borders, instead seeing its payments ecosystem dominated by social media firms Alibaba and Tencent.

“So, which is better? To have payments dominated by the social media firms or the card schemes? Neither is competitive,” said Falcon.

Jill Docherty, head of business development at Visa, UK and Ireland, declined to comment on Falcon and Lyddon’s statements, saying that the future payments landscape will see increased improvement.

“I think the next 10, 15 years are going to be phenomenal because we’re going to see more secure, safe convenience, and consumer consent for their data to be used to create a personalised experience,” said Docherty.

“We’re in this economy of hyper-personalisation. I want something for me and I can get it everywhere else, so why can’t I get it from a financial payments perspective? And I think through Open Banking, through the consent of consumers, we will see this personalisation which will drive many new use cases that I think will just continue to serve customers in terms of their payment needs.”

Otto Benz, payments technical services director at Lloyd’s Banking Group, also offered a more optimistic vision.

“I think we’ll see a marketplace where there are competing underlying payments infrastructures and on top of those infrastructures, we’ll have a variety of value-added services where there’s an active ecosystem of competing companies providing bank services,” he said.

“And those services would leverage the Open Banking API framework, there will be services connecting directly to the underlying retail payments infrastructure, some will be connecting to the card infrastructure, providing genuine customer services on top of leveraging advanced data that some of those infrastructures will provide. And I think maybe there will still be cash as well, competing for the payments capability there.”

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